Santos sanctions the Barossa project for Darwin LNG

Santos, as operator of the Barossa joint venture, announced a final investment decision (FID) has been taken to proceed with the US$3.6 billion gas and condensate project, located offshore the Northern Territory, Australia.

Barossa FID also kick-starts the US$600 million investment in the Darwin LNG life extension and pipeline tie-in projects, which will extend the facility life for around 20 years. The Santos-operated Darwin LNG plant has the capacity to produce approximately 3.7 million tonnes of LNG per annum.

Santos Managing Director and Chief Executive Officer Kevin Gallagher said FID on Barossa was consistent with Santos’ strategy for disciplined growth utilising existing infrastructure around the company’s core assets.

“Our strategy to grow around our five core asset hubs has not changed since 2016. As we enter this next growth phase, we will remain disciplined in managing our major project costs, consistent with our low-cost operating model,” Mr Gallagher said.

“Less than a year since we completed the acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets and despite the global economic impact of a once-in-a-hundred-year pandemic, it is a great achievement to have extended the life of Bayu-Undan following the approval of the infill drilling program and now to have taken FID on the Barossa project. I’d like to thank the Australian, Northern Territory and Timor-Leste governments, our joint venture partners and our customers for their support,” he added.

The Barossa development will comprise a Floating Production, Storage and Offloading (FPSO) vessel, subsea production wells, supporting subsea infrastructure and a gas export pipeline tied into the existing Bayu-Undan to Darwin LNG pipeline. First gas production is targeted for the first half of 2025.

Wood Mackenzie research analyst Shaun Brady noted: "This decision makes a lot of sense given the significant LNG demand expected across Asia Pacific through the next two decades. As Barossa was the only logical backfill option for DLNG, the Darwin facility would have had to shut down for an extended period if it was not sanctioned, with partners incurring significant decommissioning costs.   

"Barossa is an economically attractive ‘backfill’ investment because it can utilise the existing DLNG infrastructure. As a result, it can compete with greenfield global projects that need to construct expensive new LNG infrastructure.      

Santos has also signed Memoranda of Understanding with SK E&S and Mitsubishi to jointly investigate opportunities for carbon-neutral LNG from Barossa, including collaboration relating to Santos’ Moomba CCS project, bilateral agreements for carbon credits and potential future development of zero-emissions hydrogen.

“We will continue to explore the potential for carbon-neutral LNG from Barossa as part of our commitment to lower global emissions and as a company, reach our net-zero emissions target by 2040,” Gallagher said.

Barossa FID is the final condition required for completion of the 25 per cent equity sell-downs in Darwin LNG and Bayu-Undan to SK E&S, which is also a partner in Barossa. Completion of the SK transaction is expected to occur at the end of April and result in net funds to Santos of approximately US$200 million, being the sale price of US$390 million less the forecast cashflows from the 25 per cent interests from the effective date of 1 October 2019 to completion.

Santos and JERA continue to progress the binding sale and purchase agreement for JERA to acquire a 12.5 per cent interest in Barossa.

Completion of the sell-downs to SK E&S and JERA will see Santos’ interests in Bayu-Undan and Darwin LNG change to 43.4 per cent, and in the Barossa project to 50 per cent.